Author: Jessica Marquez

Often when employers think about domestic violence issues affecting their employees, it’s in the context of workplace safety. They ask themselves what they would do if a violent partner showed up on company premises.

    But an increasing number of employers are realizing that domestic violence has broader implications for productivity, absenteeism and health care costs, not to mention the well-being—and even survival—of employees who are victims of domestic violence.

    A recent survey of 1,200 full-time employed adults conducted by the Corporate Alliance to End Partner Violence, a Bloomington, Illinois-based coalition of employers and nonprofit organizations, found that 21 percent were victims of domestic violence.

    Each domestic violence incident results in $948 in health care costs for women and $387 for men, according to the Centers for Disease Control and Prevention. Lost-productivity costs as a result of domestic violence add up to $727.8 million annually, and 7.9 million paid workdays are lost a year, according to the CDC.

    As a result, the Corporate Alliance to End Partner Violence is discussing working with employee assistance programs to establish formal guidelines on how to identify and handle employees who are victims of domestic abuse.

    “Instead of each employer going to its EAP and asking how it handles domestic violence issues, we want to engage all EAPs in a broader sense,” says Kim Wells, the alliance’s executive director.

    Trained mental health professionals don’t necessarily have specific training on domestic violence issues, she says.

    “For example, someone might suggest couples counseling, and that’s not necessarily a good idea for someone in a domestic violence situation, who could be in danger,” Wells says.

    It’s essential that EAP staff and employers recognize the warning signs that an employee is a victim of domestic violence, says Dr. Brigid McCaw, medical director of the family prevention program at Kaiser Permanente Northern California, a member of the Corporate Alliance to End Partner Violence.

    From 1999 to 2003, three Kaiser employees were killed in domestic violence incidents. “The sadness and grief that their co-workers felt really led to our commitment to making this issue more visible,” McCaw says.

    Three years ago, Kaiser launched its Silent Witness display, a multi-panel exhibit of stories by employees who have dealt with domestic violence. The company also makes sure that its medical staff is properly trained to address potential domestic violence issues with members.

    McCaw says there are four pieces to this program: establishing partnerships with community advocacy groups; creating a supportive environment for members to talk about their fears; having on-site response from mental health professionals; and establishing a safety plan for victims.

    “This is very different than depression or chemical dependency,” McCaw says. “Professionals need to be able to assess the danger of the situation.”

    McCaw says that Kaiser’s EAPs are well-versed in these issues, but she has had discussions with employers who are concerned that their EAPs are not. “There are a lot of EAP clinicians for whom this is foreign and they aren’t sure what to do,” she says.

    Employers should also provide guidance to their own staff, as well as make sure their EAPs understand how to handle a domestic violence situation, says David Pawlowski, a clinician who handles domestic violence issues at ComPsych, a Chicago-based EAP.

    “Employers have to be proactive in terms of educating staff at all levels, from human resources to management,” he says. “Everyone at the company needs to be aware of the problem.”

    For its staff members who take calls from employees, ComPsych has specific training on how to identify and handle potential issues of domestic violence, Pawlowski says.

    “You need to ask if the caller feels like they are unsafe or if things ever get violent,” he says. “If you don’t ask, they won’t come forward with the information.”

In her new book, Off-Ramps and On-Ramps (Harvard Business School Press, 2007), Sylvia Ann Hewlett, founder and president of the Center for Work-Life Policy, debunks many of the myths surrounding why women leave the workforce (why they “off-ramp” from work) and talks about how companies can go about winning this talent back (giving women “on-ramps” to return). The book, which is based on a survey of 2,400 women and 650 men, provides evidence to employers that if they aren’t targeting this talent, they are missing a huge opportunity.

    Through case studies, Hewlett provides examples of companies, like Lehman Bros that are developing effective programs to recruit and retain women who have left the workforce.

    Hewlett recently spoke with Workforce Management New York bureau chief Jessica Marquez.

    Workforce Management: What prompted you to do this research in the first place?

    Sylvia Ann Hewlett: I was very unhappy with the media blitz in 2003. Lisa Belkin wrote that very famous article in The New York Times, but there was a lot of other media coverage too, which seemed to be saying that women were just dropping out, that they somehow couldn’t hack it, that they lost their ambition, that they lost their edge.

    At that point, we were looking to see where the urgent issues were in terms of retaining and accelerating women’s progress. This seemed like a good place to start. Let’s investigate who was opting out, how long they stayed out and get some facts out there. So much of the media coverage had been anecdotal. It was seemingly a group of very privileged (women)—say, Princeton graduates. I felt that it would be very helpful to this whole debate to actually get the data out there so that we could discuss what’s really going on. And I suspected that we would find a different story, and we did.

    WM: What was that story?

    Hewlett: First of all, we discovered that women were actually not opting out. Sure, almost 40 percent took a brief off-ramp, but it really was brief. The average amount of time a woman spent outside the workforce in terms of these voluntary leaves was just 2.2 years. Ninety-three percent of them were trying to get back in. In our focus groups, we unearthed a lot of very powerful testimony about the attachment to work and about how important careers were to women these days. It was what created a lot of meaning and purpose in their lives. It was their status and standing in the community. This work/identity thing was very important to women.

    There was a kind of celebration of the meaning of careers that came out of this work, and this hadn’t been in any of this media coverage because that was all about the lure of home and about how important it was to be with your 2-year-old. There was very little about their careers and the meaning of their professions. So we redressed the balance in our study.

    We found a lot of women were taking a break, but it was short break. We found that what pushed people out was very complicated. Children were important for 45 percent of women who off-ramped. Spending more time with a child was the trigger reason. But 24 percent off-ramp because of an elder care crisis. It’s not just the children that create this happy responsibility in the lives of modern women. The other thing we found was that there was a lot of push going on in some sectors.

    For instance, in the financial services sector, it was often something that went on at work that pushed the woman out, like they were just passed over for a promotion. Or they felt that they were being sidelined and not utilized. If that was going on and you had a 2-year old, you often did off-ramp.

    But we felt the pull and push were interactive and that your 2-year old might look much more appealing if you had just been passed over at work. So actually a lot of power was in the hands of the employer, because if an employer could produce a supportive but challenging work environment, many women would figure out how to deal with their family responsibilities because they would be very motivated to stay in their careers. So there was a kind of push/pull picture that we drew which was very complicated and I think really does reflect reality.

    WM: From a business standpoint, why should employers care? Why should they go after women?

    Hewlett: For starters, employers are newly aware of the costs of attrition. If an associate in a legal firm walks out the door after spending just two years with your firm, the odds are that it’s going to cost you half a million dollars. It’s the training costs of that person, all of the investments you made in her to that date. Besides which, it’s going to cost you one-and-a-half times her salary to replace her. There are a lot of costs attached to having a kind of revolving door for women who are being pushed out because either they can’t handle a 70-hour week when they have children or because they’re not being fully challenged at work.

    Then there are bigger factors in there that we explored in terms of the business case. If you look at demographics of the workplace, we have 78 million retiring baby boomers and we know that there is a much smaller cohort of trained professionals coming on, so everyone is anticipating shortfalls and bottlenecks because of the baby busts and the retiring bay boomers.

    That’s the big structural shift that is creating a much tighter labor picture, and I think it encourages employers to think hard about retaining women because perhaps in this new demographic stage of things you can’t just throw a third of your talent pool away and think that’s OK.

    The final thing we talk about is the achievement gap between men and women. Women are just an amazing talent pool. They are outperforming men all over the map. Think of two figures: 58 percent of college graduates are female these days, and in health science 80 percent of graduate degrees are going to women. I think employers have no choice but to take this talent pool very seriously and hang on to them.

    WM: To bring women back in the workplace, is it just a matter of offering flextime, or do employers need to do more than that?

    Hewlett: The business school community, but also private-sector companies, are beginning to figure out the explicit need for on-ramping programs to accomplish what they need to do.

    I think the good ones are trying to do three things. First of all, there is a certain amount of re-skilling that women need. Women and men who have taken a little time out need to be caught up in terms of what’s going on in the field. Pretty much any global company today is evolving very fast, and so there is some catch-up that needs to happen.

    Then the other thing they are trying to do is re-network. Maybe your contacts have gone cold. Maybe your confidence has slumped. There is reconnection to collegial and corporate community that also is underpinned and fostered in these programs.

    The new Wharton School of the University of Pennsylvania program, which UBS is sponsoring, has created peer coaches and executive coaches so that women have two kinds of support going back in. There also needs to be a menu of choices in terms of the number of jobs that are offered to these on-rampers. The sense is that half of the returnees do need a measure of flexibility.

    WM: In your book, you discuss arc-of-career flexibility. What is this and why is it important for employers to embrace?

    Hewlett: In the book, I talk about a menu of fairly conventional flexibility options. Like flexibility in the week, the month and the year, but also in the here and now. The other form of flexibility I talk about refers to the ability to ramp down and then ramp up again.

    I think Booz Allen is a very good example of a company that has put that in place. They have created a reserve workforce, called an adjunct program, which allows some of their high performers to ramp down to as little as a few days a month because obviously the road warrior/management consulting lifestyle is very hard to combine with a new child, for example.

    So a woman might opt in to the adjunct program and work on a project-by-project basis for two years, but then she has the option of ramping up again at the same firm and that remains an option open to her for a span of time.

    They are finding that it’s a very attractive program to women and it does mean that rather than opting out and then three years down the road going to work for the competitor, the company is able to hang on to some of its key talent.

    What’s also interesting about the Booz Allen program is that now they have a cadre of men who have opted into this program because obviously some of these issues are not exclusively female issues.

    WM: How important is it to get men into these programs as well?

    Hewlett: It’s pretty important, because you would like these programs to be mainstream. You don’t want them to be seen as an accommodation to women’s needs, but as a sensitive part of your talent management. Having a healthy number of men involved insures that there isn’t any stigma attached to taking any of these options.

    WM: The book also talks about how older women often don’t consider themselves very ambitious. Why is this?

    Hewlett: Lots of data, including my data, shows that there does seem to be this falloff in ambition among women. If you take 25 year-olds, there doesn’t seem to be much difference between men and women in terms of their reported level of ambition. About half of everyone in their professional career would see themselves as very ambitious.

    But if you did the same kind of survey at age 35, there is a widening gap between men and women. In our data, it’s very much linked to this of-ramp/on-ramp reality. A woman who has experienced the discontinuities, the stopping and starting of the off-ramp/on-ramp reality has paid a price for that time out.

    We see this as a kind of downsizing of ambition that happens because women aren’t masochistic. If they took a break and came back into the workforce and really had to struggle to find another job and often had to take a job at a lower level, then that woman has very likely redefined what she expects of herself.
Employers can play a very important role here in helping women reclaim and sustain their ambition. It’s about providing pathways back on to the fast track, which so many of them want. One mechanism to do that with is through very targeted women’s leadership training. Time Warner is an example of a company that has done this.

    Three years ago, the company created something called “Breakthrough Leadership,” which was precisely targeting these midcareer women who were either on the brink of either breaking through or languishing on the sidelines. These women got together at Simmons College a couple of times a year for intensive leadership training and networking so that they can begin to build the kinds of support networks that will undoubtedly help them get to the next stage.

    The company has seen results that show that women who go through the program are much more likely to get on the fast track than women who don’t. This program shows how important it is to figure out initiatives that help women at this watershed moment, which usually comes in their 30s, where they need to rekindle or reinvigorate their ambition.

    WM: What are the biggest challenges companies come across in reaching out to women who have off-ramped?

    Hewlett: The biggest challenge is stigma. I think that over the years it’s been very easy to see flexibility as something that losers do. Something like 38 percent wouldn’t even take what was on the books. They prefer to quit than to go on a flexible work schedule, because in their corporate culture it would label them as a second-rater. So stigma is huge, because you can have the most well-crafted policies, but if people are afraid to take them, then it’s useless.

    I spend a lot of time in the book focusing on case studies of success. One strategy, for instance, is to have your very senior men model these policies.

    WM: What can companies do, though, about those managers who remain resistant to the idea of flexible work schedules?

    Hewlett: I think there is a tipping point in corporate culture. A good example of that is Ernst & Young. That company found that when 25 percent of their professional workforce was working on some flexible schedule, it became normal. Once that happens, even if you have that outlier manager who is pretty negative about it, it doesn’t matter anymore because the culture has changed. Getting to that tipping point is the real challenge.

    WM: In your book, you talk about jobs getting more extreme. How do you define extreme jobs?

    Hewlett: There has been a kind of ratcheting up of pressure on a lot of fronts. This is due to 24/7 client demand and working in different time zones around the world. Everything comes so much more quickly these days, partly because we have the communication technology to allow that to happen. So expectations have shifted.

    Our definition of an extreme worker is someone who worked at least 60 hours a week and had at least five of the pressures that we identified. Taking our definition, 45 percent of professionals at the director level and above at the global companies we surveyed were extreme workers.

    The reason that it feeds into the off-ramps/on-ramps work is the following: Ever since Lisa Belkin wrote that article, there has been this suspicion that women are goofing off. But it turns out that women are not getting wimpier, but the work model got more intense. The average number of hours an extreme worker puts in is 73 hours per week. It’s much harder to combine that with two kids or with a mother who has Alzheimer’s than it was 10 years ago with the 55-hour week.

    So, I think on-ramps and off-ramps and scenic routes and all of those things that we are talking about today are going to become increasingly the norm. Employers will have to see this not as some stopgap measure. I think increasingly high-performing individuals with serious responsibilities in other parts of their lives are going to want to take a short break. But then they are going to want to come get back in, so this is the challenge that is going to stay with us.

    WM: How should companies measure their success?

    Hewlett: Retention rates, the acceleration rate for women so that they rise up in a way that is commensurate with their place in the talent pool—that is a huge measure of success. I also think that all of these programs become a recruitment tool. On any campus visiting day, you will find many of the companies in our task force talking about their programs because 21- and 24-year-olds find them enormously interesting.

    If you are a woman in your 20s looking forward, you certainly want to go work for a company that gives you the possibility at some point down the road of ramping down and then ramping up.

    And increasingly, men are interested too. There is a story recently that two top graduating males from Stanford University Law School are looking for jobs where there is a reduction in billable hour requirements. They are absolutely willing and wanting to work for less money, but have more time.

Janet Hanson knows a lot about what companies need to do to recruit and retain experienced women. After working for Goldman Sachs for 14 years, she left to take time off with her kids. During that time, Hanson recalls that she felt isolated and removed. As a result, she founded 85 Broads, a network of 17,000 women around the globe, whose purpose is to give women a voice and a venue to connect. (The group’s name is a reference to Goldman’s Manhattan address.)

    After working to help Lehman Bros. recruit and retain women, Hanson recently founded Broad Impact to help companies in various industries to reach out to women. Here are a few pointers to employers on what they need to do to get talented women and keep them:

    Constantly nurture your best talent. “Big firms have to do a better job of monitoring their talent,” Hanson says. “This is not just doing the year-end performance review.” Employers need to make sure that they communicate with their best employees about possibilities of promotion and leadership opportunities. Getting talented women is just part of the challenge. Keeping them is a whole other issue, Hanson says.

    Give women the opportunity to network. This is not about creating a committee and giving women a task. For young women, networks provide a sense of being part of something important early on in their careers. But employers can use networks to give experienced women leadership positions. It can be a venue for senior women to meet other women outside of their divisions and become role models for one another. “It’s about recognition,” Hanson says.

    CEOs shouldn’t micromanage a company initiative to create a culture that recruits and retains women. “This has to be organic and has to come from the women,” Hanson says. The best firms, like Lehman Bros., have allowed this to happen.

    Do what’s right for your culture. Companies can’t just look at other firms’ initiatives and adopt them, Hanson says. They have to figure out what will work best for their corporate culture. “Figure out what’s right for you.”

    Understand the business imperative. “Recruiting and retaining women is not longer an HR initiative,” Hanson says. “Big firms are short on talent, and if they don’t find ways to recruit and retain women, they will be at a serious disadvantage.” Companies need to be able to look two to five years down the line and understand the implications of not doing anything.

Buyers aren’t the only ones who have learned a thing or two as the HR BPO market has matured. Service providers have had to learn—some the hard way—that the business model they used in many of the earliest HRO deals was never going to be sustainable.

This “lift and shift” model called for the provider to take on all of the client’s HR process as they were and provide the services more cheaply.

The problem with this arrangement is that there often was no discussion between the buyers and providers about goals or metrics, experts say. The whole arrangement was about cost-cutting, and nothing more.

“Before, there was no discussion. We would just take on all of the processes,” says Jim Konieczny, division leader for BPO at Hewitt Associates.

As a result, providers like Hewitt, which inherited a number of lift-and-shift deals when it acquired Exult in 2004, ended up with dozens of clients with different HRO models in place, and no standardization. “I can never make that model work,” Ko¬nieczny says.

And no HR outsourcer has learned this lesson more profoundly than Hewitt.

The Lincolnshire, Illinois-based company has struggled with its HRO business the past few quarters.

As a result, the company is being more selective about what kinds of clients it takes on and is making sure that it has clearer discussions with prospective buyers about what they will be responsible for and what Hewitt will do.

“Before, there was no discussion. We would just take on all of the processes. I can never make that model work.” –Jim Koneiczny, Hewitt Associates

At the same time, Hewitt is renegotiating its lift-and-shift contracts, representing one-third of all its deals.

“I am knee-deep in these conversations and they aren’t easy,” Konieczny says. But clients are open to the discussions and realize that to make HRO deals work, buyers and providers both have to address changes in their own businesses that will facilitate the HRO arrangement, and that isn’t just about cost-cutting, he says.

Previously, Hewitt might have agreed to take on a client that had 270 forms it sends to employees, for such things as benefit change requests, payroll change requests and new-hire processes, without analyzing whether some forms could be eliminated or standardized, Konieczny says. That’s no longer the case.

“Now we will look to improve the process before we take it on,” he says. Specifically, Hewitt will talk with buyers about how processes can be improved on the buyer’s side before an HRO contract is signed.

Although Hewitt might be the most high-profile example of a provider making this transition, such negotiations are happening among a number of providers and buyers, experts say.

As a result, some providers are starting to ask buyers to pay 50 percent to 100 percent of the first year’s fees upfront, says Michel Janssen, research director at the Hackett Group, an Atlanta-based advisory firm. Providers are doing this so that they have the money in hand as they enter the contract, rather than absorbing the upfront costs and then getting paid. A few years ago, this was unheard of, he says.

The result of all of this change ultimately will be that HR BPO deals will take longer to come to fruition, Janssen says.

“There might be a slowdown in the number of deals coming to market as buyers’ expectations recalibrate,” he says.

Workforce Management, March 26, 2007, p. 37 — Subscribe Now!

It’s not unusual for HR managers to go into panic mode after their companies sign an HR outsourcing agreement. After all, their jobs are in jeopardy.

    But HR managers who position themselves correctly and gain new skills can remain employed with their companies, says Deborah Kops, head of program planning and development for SharedXpertise, a global organization that assists companies with transforming their businesses through shared services and outsourcing.

    Kops gives five tips on how HR managers can keep their jobs in the post HRO world:

• Learn how to focus on results rather than processes. Most HR managers are used to managing all of their own processes down to every detail. But in a post-HRO environment, these employees need to change their approach so they focus on the outcomes rather than the processes. This means HR managers need to let go of their control over how the processes are conducted and just make sure that specific metrics are met.

  
  

• Learn new skills. HR managers in a post-HRO environment need to know how to manage vendors. This means understanding how to govern the relationship, how to manage risk and how to oversee the change within the organization. Managers who can exemplify these skills will be key assets in the new organizations.

  
  

• Align yourself with the business. HR managers can no longer go on their merry way just overseeing HR as a separate entity to the business. Instead they need to become HR experts with a focus on the ultimate business goals. Ultimately, they need to become advisors to the business.

  
  

• Think commercial. Make sure you understand the cost and benefit of every process that comes out of your organization, whether it’s being run by the outsourcer or internally.

  
  

• Be flexible. HR managers need to look at their careers in a new way. Outsourcing frees up talent to do new things in a business, so that might mean that there is a great opportunity for HR managers in new roles. Be ready for that kind of change.

  
  

Hedge funds have traditionally been the domain of the ultra-wealthy. These investment vehicles, which are typically open to a limited number of high-net-worth investors, became all the rage during the market downturn earlier this decade. While the stock market was taking a nose dive, hedge fund performance was flourishing.

    That’s because unlike mutual funds, hedge funds leverage their investments by taking both long and short positions in the market—effectively allowing them to make bets against the stock market and perform well when the stock market falters.

    “Hedge funds got a lot of press earlier this decade because many of them had incredible performance during the bear market,” says Todd Troubey, a mutual fund analyst at Morningstar. “Everyone wanted a hedge fund.”

    But until recently, mainstream investors have not been able to access these investments. That’s changing as an increasing number of employers look to add hedge-like investments to their retirement plans.

    What has sparked employers’ interest is that in the past few years a number of mutual fund companies have launched hedge-like mutual funds.

    Unlike traditional hedge funds, hedge-like mutual funds are regulated by the Securities and Exchange Commission, have lower fees and minimums than their traditional counterparts, and don’t have multiyear lockups.

    Like many mutual funds, hedge-like mutual funds often have minimum investments of a couple thousand dollars, but those minimums are waived for retirement plan investors.

    Another offering that has come to market are mutual funds that invest in hedge-like mutual funds—yet another option for retirement plans. These vehicles have higher fees than hedge-like mutual funds but offer more diversification, experts say.

    “Seven years ago there were very few hedge-like mutual funds on the market, but today there are hundreds, and employers are paying attention,” says Mendel Melzer, chief investment officer at the Newport Group, a Heathrow, Florida-based provider of retirement plans and investment advisory services.

    In 2006, $17 million flowed into R-shares of hedge-like mutual funds, up from $1 million in 2005, according to Financial Research Corp. R-shares typically are the class of fund shares restricted to retirement plans.

    But employers need to do their homework before adding these vehicles to their 401(k) plans, experts say.

    “If it’s done right, it can be viewed by employees as a great perk,” says Carl Hess, practice director of Watson Wyatt Investment Consulting. “But there are a lot of factors to weigh when deciding if this is right for a company’s plan.”

Due diligence
    The first question that employers need to ask before adding hedge-like funds to their 401(k) plan is, does this make sense? Typically, employers enhance their 401(k) plans as a way of attracting and retaining employees. So before adding a hedge-like fund to a 401(k) plan, companies need to make sure it is something employees would value, Melzer says.

    “Generally these options make sense for employers that have a highly educated workforce,” he says. Many financial services companies and IT providers have added hedge-like strategies to their 401(k) plans during the past few years, he says.
Companies need to really dig in and make sure they understand the investment strategies of these investment vehicles, Troubey says.

    While equity funds might differ in how they invest, by and large they are doing the same basic thing, he says. But hedge-like mutual funds can vary significantly in which investment strategies they use, he says.

    This means that benefit managers need to understand specifically how these funds are generating returns and what they use as a benchmark, says Andrew Clark, head of research, Americas, at mutual fund research company Lipper.

    This requires more work for mutual funds that invest in hedge-like mutual funds because they consist of several strategies and managers, experts say.

    Also, it can be difficult to gauge the performance of hedge-like mutual funds because very few of these offerings have a significant history, Troubey says.

    “There are about 50 of these funds, and half of them have only been around a couple of years,” he says.

    Cost is another major factor that employers need to consider when assessing these investment options. The average hedge-like mutual fund charges 2.07 percent in expenses, compared with 1.43 percent for the average U.S. stock fund, according to Morningstar.

    “And we think 1.43 percent is too high,” Troubey says. “Almost all of these hedge-like mutual funds are low-risk, low-return, so why would you pay up for something that is supposed to achieve lower returns?”

    Fees for mutual funds or managed accounts that invest in hedge-like mutual funds are even higher. For example, the Long and Short Opportunities program, a multi-manager investment offering that invests in hedge-like mutual funds managed by Lake Partners, a Greenwich, Connecticut-based investment advisor, charges average expenses of 1.7 percent plus a 1 percent management fee.

    But the portfolio’s performance is worth the expenses, says Ron Lake, president of Lake Partners. The company’s cumulative return during the past eight years has been 72 percent, compared with 37 percent for the Standard & Poor’s 500 during the same period.

    These kinds of multi-strategy offerings that are managed by a third party can be worth their expenses since employees can rely on a manager to oversee their investments, Hess says.

    “The single-strategy hedged mutual funds can be unwieldy, and you have to worry whether employees understand what they are buying,” he says.

    The educational efforts that employers have to undertake to make sure employees understand these investments shouldn’t be underestimated, experts say.

    “Diversification is key here,” Melzer says, adding that employers want to make sure employees don’t invest 100 percent in a hedge-like mutual fund.

    If employers are interested in adding a hedge-like fund to their plans but are wary of the implications, there may be a new option for them in months to come, Hess says.

    “You will start to see these strategies pop up in life-cycle funds,” he says. Hedge-like investments can make sense for these funds, which become more conservative as the investor approaches retirement, he says.

    “Employers can really play up having life-cycle funds that invest in hedge funds,” he says. ‘They can say, ‘Here is something you can’t get anywhere else.’ “

Lifecycle funds are all the rage in the 401(k) industry. These products, also known as target-date funds, address the lament of 401(k) plan sponsors who worry that their employees don’t know how to invest for retirement, according to fund providers. These funds will automatically do the work for employees by reallocating their investments so that they have enough money saved for retirement, they say.

    A target-date fund for 2040, for instance, is aimed at employees who plan to retire that year. The fund’s asset allocation moves from aggressive to more conservative to help investors reach their goal. And employees don’t have to do anything but initially invest in the fund.

    Now employees won’t even have to do that. Under the Pension Protection Act passed in August, Congress gave employers the ability to automatically enroll employees in lifecycle funds in their 401(k) plans.

    But not all lifecycle funds are alike, advisors warn. And employers should be wary about using the lifecycle funds their 401(k) plan administrators offer without doing their own research.

    “Vendors probably love these funds because they can capture a lot of assets that usually go to outside fund companies,” says Don Stone, president of Plan Sponsor Advisors, a Chicago-based retirement plan consultant.

    Employers need to do a great deal of research to get beyond the marketing hype, warns Keith Hocter, co-founder of Bellwether Consulting, a Montclair, New Jersey-based investment consultant.

    “The marketing machine is pushing so hard on these products that plan sponsors really need to step back and think about whether they really have the best solution in hand,” he says.

Cost and performance
    On a basic level, employers should have an understanding of what kinds of investments the funds include. Many of them are investing not only in domestic equities but also in real estate and international equity. Employers should understand why the manager uses each of these asset classes, says Mark Ruloff, director of asset allocation at Watson Wyatt Worldwide.

    And just as they would with any product, employers need to examine cost and performance before adding lifecycle funds to their 401(k) plans. But the structure of these products, on top of the fact that they haven’t been around for long, can make this difficult, experts say.

    Lifecycle funds are made up of a group of underlying funds, so plan sponsors need to dig into the expenses of each one, says Joe Nagengast, president of Turnstone Advisory Group, a Marina del Rey, California-based investment consulting company that recently completed a study of lifecycle funds.

    In the past, many of these funds had an overlying fee, but most have gotten rid of that, he says.

    “If companies see ‘zero’ for expenses, that might just mean there is no overlying fee,” Nagengast says. “But there will still be expenses associated with the underlying funds.” Expenses for the underlying funds generally hover around 80 basis points, he says.

    Conversely, just because a lifecycle fund has an overlying fee doesn’t mean it should be taken out of the running, as long as the performance and process are good, Ruloff says.

    Evaluating the performance of these funds, however, can be particularly tricky since many of them don’t yet have three-year track records, advisors say. And historical performance of the funds within the target date does not indicate how they will perform in the future, Ruloff says. Companies and their consultants need to establish predictive modeling to get a sense of how the funds will perform in the future, he says.

    Given the nature of lifecycle funds, there are no clear benchmarks that plan sponsors can compare them against, Stone says.

    “The benchmarks that are out there are very broad and don’t necessarily pick up all the asset classes represented in a particular lifecycle fund,” he says.

    Experts advise employers to create their own customized benchmarks based on a mix of indexes.

    “If a fund has 60 percent in equities, a company creates a benchmark that is 60 percent based on the Standard & Poor’s 500 Index,” Hocter says.

    Many lifecycle fund managers will create their own benchmarks that employers can use, says Pam Hess, director of retirement research at Hewitt Associates.

    Whether employers create their own customized benchmarks or use ones provided by their fund managers, they need to make sure the benchmarks are updated at least annually, if not quarterly, to adjust to whatever allocation the fund has, says Amy Heyel, a consultant with Segal Advisors.

    “As the allocation of the fund changes, we change the benchmark to reflect that,” she says.

    Most important, employers need to have a plan for what they will do if one or more of the funds making up the lifecycle fund underperforms, Hocter warns.

    Since these funds are still so new, this hasn’t been an issue. But it’s inevitable that sooner or later an employer will find itself with a lifecycle fund that is underperforming, Hocter says.

    “Plan sponsors need to have clear terms in their agreements with their providers to address this,” he says. “They need to have performance standards and say that if they aren’t met, the plan sponsor can replace those funds.”

Assessing allocations
    While lifecycle funds are often explained to investors as funds that simply go from investing aggressively to investing more conservatively as the employee approaches retirement, they are actually more complex than that, experts say.

    First, each lifecycle fund moves from aggressive to more conservative at a different pace, and employers need to make sure they understand how the funds make that progression, Nagengast says.

    Some lifecycle funds don’t take market conditions into account and simply reallocate according to the date of the employee’s retirement. However, many do consider market conditions, and as fiduciaries, plan sponsors need to understand which changes in market conditions prompt changes in the fund. Some funds, for example, might have a portion invested in real estate investments, and that portion remains relatively static. However, other managers may increase or decrease the real estate holdings depending on how the markets are doing.

    Plan sponsors need to make sure that the fund managers have the expertise and processes in place to make these kinds of decisions, Hegel says.

    “I would want to know if the company has a separate asset-allocation group of quantitative experts that are developing the ideas behind the asset allocation,” she says.

    Employers should also check that their lifecycle fund managers are changing the allocation toward retirement annually, rather than every five years, Ruloff says.

    “You don’t want to be selling large blocks of equities and moving into bonds once every five years because you might be timing the market wrong,” he says, adding that it’s better for managers to employ dollar-cost averaging to avoid selling equities at their lowest.

    Another area where lifecycle funds vary widely is how they invest after they pass their target retirement date.

    Some funds are more heavily weighted in equity after retirement than others, and plan sponsors need to be comfortable with their choice either way, Stone says.

    It’s in the best interest of employers to offer lifecycle funds that retirees want to stay in for a while, Hess says.

    The more retirees who stay in a 401(k) plan means the plan has more assets and lower costs, she says. The more a plan has in assets, the lower the fund expenses are generally.

Other options
    An increasing number of large plan sponsors are creating their own lifecycle funds by establishing collective trusts. This means they pick existing funds or create their own managed pools of money to create a lifecycle fund, experts say.

    Twenty-five percent of Hewitt’s clients do this either with lifecycle funds or lifestyle funds, which reallocate based on the investor’s risk tolerance, Hess says.

    Doing this can allow employers to get low-cost and high-performing funds, experts say. But only large employers with at least $20 million in their plans can take advantage of this option because they are the only ones that can qualify for the discounts, she says.

    Even if it’s more expensive, it can be worth it for employers to try to create their own lifecycle funds from various mutual fund choices, rather than what their administrator provides, Hess says.

    “Usually plan sponsors don’t get options unless they ask,” she says.

    Ultimately, employers need to remember that although lifecycle funds sound like simple investments, they aren’t.

    “These are very simple to the investor,” Hocter says. “But as a result, they entail very complex fiduciary duties.”

Workforce Management, February 26, 2007, p. 31 — Subscribe Now!

Putnam Investments CEO Charles “Ed” Haldeman knows firsthand what it takes to turn a company around in the wake of a scandal. He provides five tips that every executive—and not just the CEO—in this situation should know:

• Be honest with everyone. “This can be tough for CEOs because you also have to be positive and upbeat all the time. The morale of the firm is established by what the CEO says. So you can be optimistic, but you can’t deceive people. You can’t do anything but tell the truth, even if the result is less positive in the public’s mind.”

  
  

• Talk publicly in sound bites. “Unless you speak in sound bites, people won’t remember what you said. That’s why when we talk about Putnam, we say we are in the business of taking care of other people’s money.”

  
  

• Be visible, be available. “It’s possible to stay in the office all day long, but seeing the CEO walk around and talk to employees in the cafeteria has a powerful impact on the company.”

  
  

• Even in periods of crisis or difficulty, make sure to delegate. “Every leader needs good people who can represent you and your same values and thought processes. Make sure to have others who get involved and make sure those people get credit and visibility. In today’s society, the CEO gets too much credit and too much blame.”

  
  

• Recognize that small things become symbols. “That means even the smallest details, like where your office is located, how big it is and how many administrative assistants you have, all send a message. People react to those things, and it can detract from the work the company is doing.”
   

  
  

A Florida city preaches tolerance, but officials fire the city manager after news of his planned sex change surfaces

Even though he was fired after word got out that he was planning to have a sex-change operation, the city manager of Largo, Florida, still defends the city’s diversity program.

On February 21, the St. Petersburg Times reported that Steven Stanton, who had been Largo’s city manager for 14 years, was undergoing hormone therapy and was planning to have a sex-change operation. Six days later, the city commissioners voted 5-2 to terminate his employment, saying that they were concerned about his ability to lead the city.

Stanton’s termination comes just seven months after Largo trumpeted its diversity program in an application for the Workforce Management Optimas Awards, which are given to organizations for exemplary workforce initiatives.

Largo, whose motto is “The City of Progress,” created the program three years ago after a small number of employees were terminated for making racial slurs or using derogatory remarks, says Susan Sinz, the city’s human resources director.

The program didn’t focus on specific issues, like those around transgender employees, but it did focus on employees assessing one another based on their knowledge, skills and abilities, Sinz says.

And the program was effective, Stanton insists.

“There is substantive tolerance for diversity among the employees of the city of Largo,” he says. “This wasn’t a Largo issue as much as it was the result of a very active group of churches hijacking the process.”

In the four days following the media reports about Stanton’s planned operation, the city received 800 e-mails insisting that Stanton be fired, he says.

In many cases, Largo employees were prevented from working, Sinz says. For example, one employee who was driving in a city vehicle was afraid to leave her car because of protesters, she says.

Largo tried to address the issue with its 900 full-time employees in the days following the media reports by hosting voluntary educational meetings, says Karen Doering, senior counsel for the National Center for Lesbian Rights, which held the sessions. Doering also is Stanton’s attorney. “It was Transgender 101, and it was designed to answer any questions they might have,” she says.

About 40 employees in total attended the pair of two-hour sessions.

A few employees expressed discontent over Stanton’s planned sex change, Sinz says. “Some employees have had a difficult time with this, asking, ‘If he can dress like a woman, why can’t I wear an earring?’ “

Experts say that Largo might have prevented some of the outcry if it had included diversity training about transgender issues sooner.

“Transgender issues are still on the periphery of most diversity initiatives,” says Billy Vaughn, managing partner and chief learning officer of Diversity Training University, a San Francisco-based provider. “It’s a very hard thing for people to understand and talk about because people have very strong feelings about it.”

Stanton and Sinz had developed an education and communications program to address concerns employees might have about his upcoming operation. But they ended up not having time to execute the program because a reporter broke the story before Stanton had informed the commissioners. At press time, Stanton was “leaning toward” appealing the commissioners’ decision, Doering said.

Stanton still believes that if the education plan had been put into place, it would have been successful. Sinz, meanwhile, isn’t sure that any diversity program could have prevented the firestorm in Largo.

“The potential is out there for the public to trump any efforts because they are the ones that allow us to work in the community,” she says.

    Stanton is appealing the commissioners’ decision and a public hearing is scheduled for March 23.

Workforce Management Online, March 2007 — Register Now!

For Schneider Electric and many other companies, the main driver behind establishing a shared-services center stems from the organization’s desire to have immediate access to all of its workforce management data.

    But what good is that data if the company’s managers don’t know what it all means?

    That’s the question Brian McLaren, director of HR shared services at RBS Group, recently asked himself.

    The Edinburgh-based bank once known as Royal Bank of Scotland has realized huge cost savings since it established its shared-services center in 2000. After investing ?12 million in the project, the company has seen savings of ?70 million during the past six years.

    Despite this success, McLaren saw room for improvement. Specifically, he has noticed that while the company has a lot of good information about its employees, RBS isn’t doing enough to use this data to improve its workforce management strategy, he says.

    “Our HR directors do not quite understand the data,” McLaren says. “We have these individual streams of information, but nothing to bring it all together that makes the connection to our business.”

    To address the issue, RBS is spending the next few months creating a “people metrics group” whose job will be to provide monthly reports to line managers and HR directors on various human capital metrics.

    The reports might provide an analysis of why turnover is particularly high in one business unit compared with another, McLaren says.

    By the end of this year, McLaren hopes to establish a group of 14 HR managers to make up the group. They will be supported by a few credit analysts and underwriters.

    “Since we are a financial services company, we have a lot of expert analysts who can support this group,” McLaren says.

    RBS is on the forefront of an emerging trend, analysts say. “Consultants have been pushing the idea of taking this human capital approach for some time, but it’s been slow to get off the ground,” says Neil McEwen, an analyst at PA Consulting Group who has worked with RBS in the past.

    This is becoming a greater focus now because line managers are turning to the shared-services centers for this kind of workforce analytics, analysts say.

    “Companies are starting to realize that the value of having the data isn’t just the ability to report the data, but to interpret it and understand how it can be used to improve the business strategy,” says David Parry, an analyst in the London office of Deloitte. “Being able to slice and dice the data is the key benefit to doing shared services.”

Workforce Management, February 12, 2007, p. 21 — Subscribe Now!